Anne Ward – Professional Company Director – Chairman of Colonial First State
Q: How would you sum up the current ‘state of super’ in Australia?
A: The word I can’t get out of my mind is chaotic. It’s a really, really crowded change agenda and some of the proposals are inconsistent with each other. Policy makers are grappling with a raft of recommendations from the Hayne Royal Commission and the Productivity Commission, the role and extent of insurance in super is being questioned, the drag of inactive and duplicate accounts is being tackled and a range of bodies such as the ACTU are seeking to exert greater influence over individual funds. Any one of these issues in normal times would be massive and there would be consultation, public discussion and debate, but we have got all those things happening at once. It is an extremely challenging time for trustees to figure out what they should be doing and how they should be shaping their fund going forward.
Q: What do you see as some of the challenges ahead?
A: As well as the volume of regulatory change, it is the politicisation of super. We know that large pools of money are tempting for any government. I think we’re at a point in time where the major parties have very different views of our superannuation system and that’s leading to quite different policy responses and hastily prepared legislation. All of that contributes to ongoing erosion of public confidence in super which I think is a really big concern. It is also regrettable that no Federal Government in 25 years has been able to clearly articulate the purpose of compulsory super. This contributes to the policy confusion facing the industry.
Regulators have also been comprehensively criticised by Hayne, so ASIC and APRA, particularly, are under pressure and very keen to show they are a tough and effective regulator. That’s likely to lead to a whole lot of litigation which may or may not help things. But there’s also now a real lack of clarity around who is accountable—ASIC or APRA—for certain things. That pressure on regulators will also make for some really tough times. It’s a really difficult environment which I don’t see getting easier any time soon.
Q: How has corporate culture been impacted?
A: Culture is a hot topic in boardrooms at the moment. The APRA review of culture at CBA which came out last May was an absolute watershed. Every board I’m on—and, I know many, many other boards—took that review and did their own self-assessment.
One of the big lessons from that review was around complacency and arrogance and how a strength—in the CBA’s case it was stellar financial performance over many years—could blind the organisation to a whole lot of other risks that were emerging, particularly non-financial risk.
A key issue regarding culture is how, as a non-executive director, do you understand and influence culture deep inside your organisation. Boards all over Australia are having this conversation now.
Q: How can trust be rebuilt?
A: The answer is not quickly. Earning trust firstly is about credibility, so you have to communicate simply and clearly. This is something super does badly; it’s getting better but funds need to communicate with members in language they can understand. Secondly, it’s about reliability – tell them what you’re going to do, then do it. Consistently do what you say you will do. Thirdly, it’s about intimacy. Talking directly to members as individuals and not in mass mailouts that treat them all the same. Fourthly, to paraphrase Hayne, you’ve got to put the interests of those you’re representing first – so the whole concept of best interest versus self-interest. They sound deceptively easy but those four things need to happen.
Q: If I asked you question 1 in five years’ time, how do you think the superannuation landscape will look?
A: That’s a really, really tough question given all of the potential changes we’re facing. I think Australia will still have compulsory contributions; that won’t change. We will have a radically different retail or for-profit sector. It won’t go away but it will be different. We will have increased consolidation in the industry fund sector so there will be fewer, larger funds. And self-managed super will still be around but some of the policy changes coming through, means it is going to become increasingly challenged.
Going back to the question of the purpose of super, from a fund perspective it is obvious: serve your members well and grow their retirement savings. It is all about the quality of life that members will have in retirement. I think the primary focus of funds needs to be to give members confidence in their financial future, not just chasing the highest returns. It’s about giving members some sense of comfort, control and choice, to the extent they want it, around investments or increasing contributions. That’s the job of a superannuation fund. I hope that purpose has become clearer in five years and that community trust in our superannuation system has been restored.
Ben Walsh – Managing Director and CEO of Mercer Australia, and Zone Leader for Mercer Pacific
Q: How would you sum up the current ‘state of super’ in Australia?
A: The state of the industry currently is very busy, and everyone is thinking proactively about what the future might look like. But if you get on the balcony and away from that day-to-day business, I see a great opportunity before us. We have a very good retirement savings system in Australia and it would be great if some of the recommendations from the Productivity and Royal Commissions are implemented, particularly around multiple accounts and underperforming funds.
Q: What do you see as some of the challenges ahead?
A: For some in the financial services sector the main challenge is clearly about rebuilding trust with members. For most, however, transitioning to the new environment, whatever that form ultimately proves to be, will require a period of adjustment. Hayne’s final report from the Royal Commission has been quite nuanced in that regard.
Q: How has corporate culture been impacted?
A: Culture is a funny thing. You can feel its effects within an organisation but it’s hard to get your arms around it. The APRA report into risk culture at the Commonwealth Bank really prompted many boards across all industries in Australia to put a magnifying glass to the culture of their organisations. It quite rightly has put pressure on organisations and their boards to ensure their houses are in order. Many organisations are emphasising a strong culture of speaking up, and are rolling out training and internal awareness campaigns to reinforce this, along with general expectations of behaviour and what is celebrated within an organisation.
Q: How can trust be rebuilt?
A: To start rebuilding trust, there needs to be a balanced tone from the top of organisations that clearly puts members at the centre. Gaining trust requires actions – purposeful and meaningful actions focused on making the lives of members and investors better and driving better outcomes for them. They also need KPIs within the organisation that are focused on customer service. These are all things that can help.
Q: If I asked you question 1 in five years’ time, how do you think the superannuation landscape will look?
A: Five years from now, after the changes have taken effect, we will see a marked reduction in unwanted multiple accounts within the industry which has already started to take place. We will see fewer funds. We will see tighter regulatory scrutiny, oversight and action, and probably more accountability for senior executives and trustees. Should they be elected, Labor’s policy on refundable franking credits will change people’s strategy and that may mean some SMSFs will be better off in APRA regulated funds. Retirement income products are going to be a stronger focus for funds. And, there will be more advanced technology for members to enable them to take a more self-service approach to managing their retirement wealth.
